German American Bancorp, Inc.
Annual Report 2017

Plain-text annual report

FOUNDATION OF Success 2017 Summary Annual Report Strength in Numbers Net Income & Earnings Per Share (dollars in thousands, except per share amounts) Earnings Per Share* Total Shareholders’ Equity (dollars in millions) Annualized Return on Equity $40,676 $35,184 $28,344 $30,064 $1.43 $1.51 $1.57 $1.77 $25,413 $1.32 $365 $330 $252 $229 $200 13.40% 13.21% 12.47% 10.94% 11.59% $400 $350 $300 $250 $200 $150 $100 $50 $0 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 *Earnings Per Share adjusted for 3-for-2 stock split completed in 2017. Total Loans, Net of Unearned Income (dollars in millions) Commercial and Agriculture Loans as % of Total Loans Total Assets (dollars in millions) Annualized Return on Assets $3,500 $1,990 $2,142 $3,000 $3,144 $2,956 $1,448 $1,564 $1,382 81% 81% 82% 81% 81% $2,164 $2,237 $2,374 1.25% 1.31% 1.33% 1.24% 1.35% $2,500 $2,000 $1,500 $1,000 $500 $0 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17 $45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 $2,500 $2,250 $2,000 $1,750 $1,500 $1,250 $1,000 $750 $500 $250 $0 8th consecutive year German American has achieved record earnings 13th consecutive fiscal year of double-digit return on equity 15% increase in quarterly cash dividend Dear Shareholders: 2017 brought an acceleration of the economic recovery our nation has been experiencing since the conclusion of the Great Recession in the U.S. in June 2009. While the recovery from the U.S. recession, which officially lasted from December 2007 to June 2009, had been very slow but steady during the early years of the recovery, this past year we’ve seen the economy come back very strong. At German American, we have been fortunate to do business in a part of the country that has historically demonstrated remarkably consistent, stable performance in good times and bad. Just like the markets we serve, German American Bancorp has likewise delivered exceptional financial performance in both good times and bad to the benefit of our customers, communities and shareholders. We were pleased in 2017 to achieve another record year in terms of total asset size and earnings. For the first time ever in our 107 year history, we eclipsed the $3.0 billion mark in total assets Letter from Mark A. Schroeder Chairman and CEO and the $2.0 billon mark in total loans outstanding in 2017. We also reported record net income in 2017 of $40.7 million, or $1.77 per share, which represents our 8th consecutive year of record earnings. Additionally, we posted an 11.59% return on equity in 2017, the 13th consecutive year in which we’ve delivered a double-digit return on shareholder equity. Clearly from a financial perspective, this level of performance is in keeping with the Foundation of Success theme of this year’s annual report. continued... 1 continued... For German American, however, this Foundation of Success is about so much more than just financial performance. It’s about the ongoing geographic growth we’ve experienced over the course of the past two decades. Starting in the 1990s with the expansion of German American into the heritage counties surrounding our home base of Jasper and Dubois County, Indiana, and continuing over the past decade with expansion into larger and economically vibrant markets in Southern Indiana, we have grown German American into one of the largest Indiana-domiciled banks encompassing a geographic footprint throughout the lower third of the State of Indiana. Expansions into metro markets in the past decade include Bloomington, Columbus, and Evansville, Indiana, and most recently Clark and Floyd counties on the Indiana side of the Louisville, Kentucky MSA. During 2017 we also completed the integration of River Valley Bancorp, acquired in March 2016, which was marked by the continuation of River Valley’s dominant presence in Madison, Indiana, as well as by the integration of the Seymour and North Vernon, Indiana, offices into our operations in Columbus, Indiana. Additionally, we’ve seen dynamic growth in 2017 within Clark and Floyd Counties, where we’ve built out the five- branch network that River Valley had in those markets into its own business unit that has seen tremendous acceptance and growth within what is undoubtedly one of the fastest growing and economically robust markets, not only in Indiana, but throughout the entire Midwest. 2 Most importantly, this Foundation of Success is about people and our relationships with our customers, employees, shareholders and the communities we serve. It’s about our commitment to make the greatest contribution possible to the prosperity and quality of life of all our stakeholders. By building customer relationships based on the trust and integrity of our local financial professionals, who serve as community leaders in every community we serve, we’re helping our customers prosper and our communities thrive. This is true to our German American Mission that states, “We support the communities we serve and believe that when a community thrives, its people prosper.” We do these things because it’s the right thing to do and because it’s good for business. As a community banking organization, our Foundation of Success is intricately linked to the success of our customers and our communities. Just as we celebrate the successes of 2017, the past decade, and our entire 100+ years of existence, which has resulted in German American being recognized as one of the best community banks in the nation, we also look forward to the future and toward further building upon the Foundation of Success that all of our stakeholders – customers, communities, employees and shareholders – have helped us create for more than a century. Sincerely, Mark A. Schroeder Chairman & CEO 3 Where We Are Bloomington MONROE COUNTY Bedford LAWRENCE COUNTY DAVIESS COUNTY Odon/Cannelburg Vincennes Washington KNOX COUNTY Loogootee MARTIN COUNTY Petersburg Ireland Dubois Jasper DUBOIS COUNTY Huntingburg Princeton GIBSON COUNTY Oakland City VANDERBURGH VANDERBURGH COUNTY COUNTY Winslow PIKE COUNTY WARRICK COUNTY Evansville Newburgh Rockport Holland Ferdinand SPENCER COUNTY PERRY COUNTY Tell City 4 DECATUR COUNTY BARTHOLOMEW COUNTY Greensburg Columbus JACKSON COUNTY Seymour JENNINGS COUNTY North Vernon Osgood RIPLEY COUNTY Dupont JEFFERSON COUNTY Madison Hanover Carrollton CARROLL COUNTY, KENTUCKY CLARK COUNTY Charlestown Sellersburg Sellersburg Jeffersonville Jeffersonville New Albany New Albany FLOYD COUNTY Floyds Knobs Banking Insurance Investments Ag Services New office coming May 2018 pending close of German American’s acquisition of MainSource locations. A strong foundation established in 1910 . . . On December 1st, 1910, German American Bank opened for business in Jasper, IN. Several citizens in the community worked together to open the bank with $40,000 in capital stock, approximately sixty stockholders and two employees. Traits of this Midwestern community located in the heart of southwestern Indiana were embedded in German American Bank from the beginning, including people first, hard work, family, community, integrity, and pride in the German heritage while celebrating new hopes and dreams in America. German American Bank was established on this strong foundation, and the company continues to hold these values today. Our Mission German American is dedicated to helping individuals, families and businesses achieve greater prosperity and quality of life. Together, our financial team builds lasting client relationships based on integrity, responsive service, innovation, and shared values. We support the communities we serve and believe that when a community thrives, its people prosper. Our Values Integrity Our reputation relies on integrity. We value honesty, open communication, diverse perspectives, and high ethical principles. People People come first at German American. We invest in our communities and support social and economic development. We value respect and courtesy for every person and believe in the power of positive attitudes. Relationships We develop relationships based on a strong foundation of trust and mutual respect to help create loyal customers and a loyal team. Our unified goal is serving individuals, families and businesses to achieve financial success. Performance Performance is vital. German American employees must possess the determination and drive to succeed. Our vast knowledge base and expertise enables us to work efficiently while providing customer service excellence to support strong performance. 5 “The world of banking and financial services has changed dramatically during the past century and the pace of change continues to accelerate, yet as long as we make certain that our culture of ‘local-people-helping-local-people succeed’ stays at the center of our principles, I am confident that German American will survive and prosper in the coming years, and well beyond.” - Mark Schroeder, Chairman and CEO addressing the German American Bank team as they celebrated the 100 year anniversary of the company in 2010 People are the core foundation of our success. Establishing long-term relationships with our customers, our employees, our shareholders and our communities is critical as we strive to make the greatest contribution possible to the prosperity and quality of life of these key stakeholders. We demonstrate this commitment through financial performance and corporate responsibility. People We seek to attract, develop and retain talented local financial professionals in every community we serve. We empower our employees to serve our customers in exceptional ways with local, responsive decision-making. Our leaders are committed to being involved in the economic development initiatives within their local communities. We actively look for ways to partner with businesses, non-profits, schools, individuals and municipalities to strengthen the future of the communities for a better place to live and work. In addition to the full array of financial services we provide and the jobs and spending we bring to local economies, we also show our corporate citizenship through the volunteer spirit of our entire German American team. Local Leadership 6 Customer Centric Relationship Focus Building customer relationships based on trust and integrity from local financial professionals defines a community bank, and we believe no one does community banking better than German American. We exist to help our customers with their banking, insurance, investment and wealthy advisory needs through every stage of life. We combine top-rated customer facing technology with a talented, customer-focused team to deliver service excellence. The foundation to find the best financial products to help our customers achieve their dreams and goals is based on a strong relationship with our customers. To us, that’s success. Our Core Business Since 1910 we’ve been serving the banking needs of our customers. Not only have we grown and expanded our footprint significantly since then, we’ve also expanded the products and services we offer to become a complete financial services resource for our customers. From accumulating and managing wealth, effectively managing risk, to the current technology for managing every day banking, our team builds and expands relationships to serve our customers’ best interests. With our eye on our future success, we are committed to adapting to demand and implementing new ideas to service our customers. 7 Report of Independent Registered Public Accounting Firm Board of Directors and Shareholders German American Bancorp, Inc. Jasper, Indiana We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated balance sheets of German American Bancorp, Inc. as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017, appearing in the Annual Report on Form 10-K, not appearing herein. In our report dated March 1, 2018, also appearing in the Annual Report on Form 10-K, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the consolidated balance sheets and consolidated statements of income presented on pages 10 and 11 is fairly stated, in all material respects, in relation to the consolidated financial statements from which they have been derived. Crowe Horwath LLP Indianapolis, Indiana March 1, 2018 8 Five Year Summary Dollars in thousands, except per share data The following selected data should be read in conjunction with the Company’s Annual Report on Form 10-K for 2017. Summary of Operations: Interest Income Interest Expense Net Interest Income Provision for Loan Losses Net Interest Income after Provision for Loan Losses Non-interest Income Non-interest Expense Income before Income Taxes Income Tax Expense Net Income Year-end Balances: Total Assets 2017 2016 2015 2014 2013 $ 111,030 $ 103,365 $ 81,620 $ 80,386 $ 75,672 11,121 99,909 1,750 98,159 31,854 77,803 52,210 11,534 8,461 94,904 1,200 93,704 32,013 76,587 49,130 13,946 6,068 75,552 - 75,552 27,444 61,326 41,670 11,606 6,047 74,339 150 74,189 23,937 57,713 40,413 12,069 7,155 68,517 350 68,167 23,615 54,905 36,877 11,464 $ 40,676 $ 35,184 $ 30,064 $ 28,344 $ 25,413 $ 3,144,360 $ 2,955,994 $ 2,373,701 $ 2,237,099 $ 2,163,827 Total Loans, Net of Unearned Income 2,141,638 1,989,955 1,564,347 1,447,982 1,382,382 Total Deposits Total Long-term Debt Total Shareholders’ Equity Average Balances: Total Assets 2,484,052 2,349,551 1,826,376 1,779,761 1,812,156 141,717 364,571 120,560 330,267 95,606 252,348 64,591 228,824 87,237 200,097 $ 3,002,695 $ 2,841,096 $ 2,267,555 $ 2,170,761 $ 2,037,236 Total Loans, Net of Unearned Income 2,036,717 1,904,779 1,483,752 1,406,000 1,272,055 Total Deposits Total Shareholders’ Equity Per Share Data: (1) Net Income(2) Cash Dividends Book Value at Year-end Tangible Book Value Per Share(3) Other Data at Year-end: Number of Shareholders Number of Employees 2,395,146 2,249,892 1,825,913 1,783,348 1,695,796 350,913 321,520 241,018 214,496 189,689 $ $ $ 1.77 0.52 15.90 13.45 3,459 621 1.57 0.48 14.42 11.94 3,513 605 1.51 0.45 12.67 11.57 3,343 479 $ 1.43 $ 0.43 11.54 10.40 3,398 473 1.32 0.40 10.13 8.92 3,444 478 Weighted Average Number of Shares(1)(2) 22,924,726 22,391,115 19,888,374 19,834,766 19,211,517 Selected Performance Ratios: Return on Assets Return on Equity Equity to Assets Dividend Payout Net Charge-offs (Recoveries) to Average Loans Allowance for Loan Losses to Loans Net Interest Margin 1.35 % 11.59 % 11.59 % 29.11 % 0.04 % 0.73 % 3.76 % 1.24 % 10.94 % 11.17 % 30.21 % 0.04 % 0.74 % 3.75 % 1.33 % 12.47 % 10.63 % 29.97 % 0.03 % 0.92 % 3.70 % 1.31 % 13.21 % 10.23 % 29.81 % (0.01) % 1.03 % 3.76 % 1.25 % 13.40 % 9.25 % 30.18 % 0.10 % 1.05 % 3.67 % (1) Share and Per Share Data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017. (2) Share and Per Share Data includes the dilutive effect of stock options. 9 (3) Tangible Book Value per Share is defined as Total Shareholders’ Equity less Goodwill and Other Intangible Assets divided by End of Period Shares Outstanding. Consolidated Balance Sheets Dollars in thousands, except per share data Assets Cash and Due from Banks Federal Funds Sold and Other Short-term Investments Cash and Cash Equivalents Securities Available-for-Sale, at Fair Value Loans Held-for-Sale, at Fair Value Loans Less: Unearned Income Allowance for Loan Losses Loans, Net Stock in FHLB of Indianapolis and Other Restricted Stock, at Cost Premises, Furniture and Equipment, Net Other Real Estate Goodwill Intangible Assets Company Owned Life Insurance Accrued Interest Receivable and Other Assets TOTAL ASSETS Liabilities Non-interest-bearing Demand Deposits Interest-bearing Demand, Savings, and Money Market Accounts Time Deposits Total Deposits FHLB Advances and Other Borrowings Accrued Interest Payable and Other Liabilities TOTAL LIABILITIES Shareholders’ Equity Preferred Stock, no par value; 500,000 shares authorized, no shares issued Common Stock, no par value, $1 stated value; 45,000,000 shares authorized(1) Additional Paid-in Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income TOTAL SHAREHOLDERS’ EQUITY TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY End of period shares issued and outstanding(1) (1) Share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017. See Annual Report on Form 10-K. 10 December 31, 2017 2016 $ 58,233 12,126 70,359 $ 48,467 16,349 64,816 740,994 709,786 6,719 15,273 2,145,019 1,993,404 (3,381 ) (15,694 ) (3,449 ) (14,808 ) 2,125,944 1,975,147 13,048 54,246 54 54,058 2,102 46,385 30,451 13,048 48,230 242 54,058 2,835 46,642 25,917 $ 3,144,360 $ 2,955,994 $ 606,134 $ 571,989 1,490,033 1,399,381 387,885 378,181 2,484,052 2,349,551 275,216 20,521 258,114 18,062 2,779,789 2,625,727 - 22,934 165,288 178,969 (2,620 ) - 15,261 171,744 149,666 (6,404 ) 364,571 330,267 $ 3,144,360 $ 2,955,994 22,934,403 22,904,157 Consolidated Statements of Income Dollars in thousands, except per share data Interest Income Interest and Fees on Loans Interest on Federal Funds Sold and Other Short-term Investments Interest and Dividends on Securities: Taxable Non-taxable TOTAL INTEREST INCOME Interest Expense Interest on Deposits Interest on FHLB Advances and Other Borrowings TOTAL INTEREST EXPENSE NET INTEREST INCOME Provision for Loan Losses NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES Non-Interest Income Trust and Investment Product Fees Service Charges on Deposit Accounts Insurance Revenues Company Owned Life Insurance Interchange Fee Income Other Operating Income Net Gains on Sales of Loans Net Gains on Securities TOTAL NON-INTEREST INCOME Non-Interest Expense Salaries and Employee Benefits Occupancy Expense Furniture and Equipment Expense FDIC Premiums Data Processing Fees Professional Fees Advertising and Promotion Intangible Amortization Other Operating Expenses TOTAL NON-INTEREST EXPENSE Income before Income Taxes Income Tax Expense Net Income Basic Earnings per Share(1) Diluted Earnings per Share(1) Dividends per Share(1) (1) Per share data has been adjusted to reflect a 3-for-2 stock split on April 21, 2017. See Annual Report on Form 10-K. 2017 Years Ended December 31, 2016 2015 $ 91,745 134 $ 86,202 74 $ 10,898 8,253 111,030 7,094 4,027 11,121 99,909 1,750 98,159 5,272 6,178 7,979 1,341 4,567 2,641 3,280 596 9,638 7,451 103,365 5,187 3,274 8,461 94,904 1,200 93,704 4,644 5,973 7,741 987 3,627 3,703 3,359 1,979 66,740 13 9,017 5,850 81,620 3,976 2,092 6,068 75,552 - 75,552 3,957 4,826 7,489 846 3,110 3,532 2,959 725 31,854 32,013 27,444 46,642 6,609 2,621 954 4,276 2,817 3,543 942 9,399 77,803 52,210 11,534 40,676 1.77 1.77 0.52 $ $ $ $ 43,961 6,297 2,261 1,151 5,686 3,672 2,657 1,062 9,840 76,587 49,130 13,946 35,184 1.57 1.57 0.48 $ $ $ $ 35,042 4,939 1,873 1,144 3,541 2,661 3,669 790 7,667 61,326 41,670 11,606 30,064 1.51 1.51 0.45 $ $ $ $ 11 Board of Directors Douglas A. Bawel Lonnie D. Collins Christina M. Ernst Marc D. Fine U. Butch Klem J. David Lett Chris A. Ramsey M. Darren Root Mark A. Schroeder Thomas W. Seger Raymond W. Snowden Michael J. Voyles 12 Cautionary Note Regarding Forward- Looking Statements This Summary Annual Report, including our CEO’s letter to our Shareholders beginning on Page 1, includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, relating to our expectations concerning our opportunities for future growth and prosperity, and other matters. Readers are cautioned that actual results and performance may differ materially from those expectations expressed or implied by any forward-looking statement due to the inherent uncertainties in predicting the future, and risks affecting German American and its stock, including those that are described in Item 1, “Business - Forward Looking Statements and Associated Risks” and in Item 1A, “Risk Factors,” in our accompanying Annual Report on Form 10-K. You may review that document (and our other SEC filings) via the internet through the Investor Relations section of our website, www.germanamerican.com. This report speaks only as of March 1, 2018, and we do not promise anyone that it will be updated for changes or events after that date. 13 001CSN301F 

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